This issue is becoming increasingly important. The American Bar Association and American Psychological Association have a handbook to educate you on the topic

Advertisement

Edward, your client of 15 years, comes into your office. Typically punctual, he’s half an hour late for this appointment. Edward explains that he got lost. He asks you to draft a codicil to his will. He no longer wants his only child, Barbara, to be his executor – she hasn’t been very helpful since his wife, Helen, died two months ago. Instead, he wants his neighbor, Jane, to be executor. Jane drops by every day to keep him company and help him around the house. He trusts her more than Barbara.

More than that, Edward’s angry with Barbara. Where has she been? He directs you to take a quarter of her legacy and give it to Jane as a reward. Edward also wants to give another quarter to Jane’s theatre troupe, which he’s come to enjoy since Helen passed.

You have doubts. “Are you sure you want to take away half your daughter’s inheritance?” you ask. “Helen should have thought of that before she became such a brat!” he shouts. “You mean Barbara,” you say. “Ha, right, it couldn’t be Helen,” he laughs. “Where is my mind?”

A Vital Task

It can be hard to tell whether an elderly client is showing diminished capacity. Is Edward disoriented and forgetful, or making common mistakes? Is Barbara mistreating him or is he deluded? Does he have a new friend and a new hobby, or is he being taken advantage of? Is he emotionally volatile and inappropriate or masking his grief? Is Edward showing signs of dementia or just of being human?

These questions can be hard to answer for trained clinicians, much less lawyers. But they get to the heart of a vital task: assessing your clients’ mental capacity. Although it’s usually immediately obvious—most clients are both clearly and presumptively fully competent—the capacity question will come up more and more as the population ages. Failing to assess a client’s capacity does your clients a disservice and leaves you vulnerable to malpractice suits from angry would-be beneficiaries. It’s increasingly important to get educated on capacity issues among the elderly.

To that end, Juan Antunez, of the Florida Probate & Trust Litigation Blog directs us to the excellent Assessment of Older Adults with Diminished Capacity1 (the Handbook). A joint project of the American Bar Association and the American Psychological Association, the handbook lays down the background on the issues and gives practical guidance on how to approach capacity questions. Here are a few nuggets that we found especially helpful.

Differing Standards of Capacity

The most important thing for practitioners to keep in mind is that there’s no single standard for capacity—it depends on what your client is trying to do. Testamentary capacity in most jurisdictions comes down to four basic questions: does the client understand his “natural” beneficiaries; does he understand the nature and extent of his property; does he understand the disposition he is making; and can he translate these elements into a rational plan.

Crucially, the client doesn’t have to understand these things all the time, nor must he understand anything beyond them: it’s fine for an often-confused client to compose a will during a lucid interval and likewise fine for a client with considerable impairment to execute a will as long as he’s clear on the four factors above (though confusion on other issues could be an indication of confusion as to the crucial question). Conversely, an otherwise healthy client can’t change his estate plan if he’s in the grip of an “insane delusion” as to any factor in the inquiry. Returning to our opening example, if Barbara has always been a loving daughter to Edward but he has baselessly decided she is out to get him, he lacks testamentary capacity even if he’s otherwise lucid .

Donative capacity is analogous to testamentary capacity, but the client has to understand the nature and effect of the gift rather than form a rational plan. Some states add the requirement that a donor knows the gift is irrevocable and will reduce his assets or estate.

Capacity for health care decisions is highly specific: The client needs to understand the major benefits, risks and alternatives to anything proposed, and he must be able to make and communicate the resulting decision.

Contractual capacity is the trickiest because it’s pegged to the contract in question: The client has to understand the nature and effects of the contemplated arrangement. For complicated transactions, this standard can be very high indeed. Significantly, this is the relevant standard when the client bargains for your services.

A Three-Stage Process

The Handbook identifies three basic stages for assessing an elderly client’s state of mind. In the preliminary stage, you should look for signs of diminished capacity. The Handbook recommends that you focus on decisional abilities, not on the client’s temperament; pay attention to changes over time rather than at discrete moments; consider whether mitigating factors, like discomfort, sensory failures, stress or grief, are behind potential red flags; and be wary of clouding your judgment with ageist stereotypes. The Handbook contains worksheets to help you navigate and document your initial assessment.

Once you’ve assessed your client’s capacity, it’s important to apply your analysis in light of the ethical rules in your jurisdiction. Model Rule of Professional Conduct (MRPC) 1.14 says that you should strive to maintain a normal lawyer-client relationship to the extent “reasonably possible” in light of your client’s impairment. Comment 6 gives guidance on relating your observations to your client’s request. Consider: your client’s ability to articulate his reasoning; the variability of his state of mind; his ability to appreciate the decision’s consequences; the substantive fairness of the decision; and the consistency of a decision with the client’s known long-term commitments and values. Depending on what he’s trying to do, even significant impairment might call for little more than caution. But, if his impairment is severe enough in relation to the complexity or oddity of his decision, you may want to consult a clinician for further assessment.

The formality and delivery of the consult and report can vary. The Handbook gives further guidance on the topic, as well as worksheets, sample forms and sample referral requests. You should, of course, try to involve the client in this process as much as possible. But if you have serious concerns and the client resists a consultation, MRPC 1.14 allows (but doesn’t oblige) you to take “protective action” when you “reasonably believe that the client has diminished capacity, is at risk of substantial physical, financial or other harm unless action is taken and cannot adequately act in [their] own interest …” This includes disclosing otherwise-confidential information to clinicians, family members and certain limited others, provided the above criteria are met and you disclose only “to the extent necessary to protect the client’s interest.”

The final stage in assessing a client’s capacity involves coming to a legal conclusion. If you’ve seen no signs of impairment, this is simple. But if you’ve consulted a clinician, remember that his opinion is evidence, not proof, of your client’s legal capacity. Just as you’re not qualified to perform formal diagnostic techniques on your client, the clinician can’t provide you with a formal legal analysis. After all, it’s your assessment on the line.

Wealth Planning Webinars and White Papers

The vast majority of WealthManagement.com readers are either unfamiliar with life settlements, or are familiar with them but have never recommended them to clients. Many advisors associate life settlements with either an option for the terminally ill, or with unethical activities such as a stranger-originated life insurance (STOLI)....More

Many financial advisors focus on the key baby boomer segment that is approaching retirement. With one of the largest transfers of wealth in history expected to occur over the coming decades and technology playing a larger economic role, successful advisors are looking for ways to work with younger investors....More

Many small business owners want to plan for their companyâ€™s long-term future and their own retirement. In the past, addressing a small business ownerâ€™s retirement and buy-sell needs often meant proposing two independent solutions....More